New legal protections for off the plan property purchasers

Proposed amendments to the Conveyancing Act 1919 will be a welcome change to purchasers buying properties off the plan, who are otherwise plagued with risk and uncertainty.

Off the plan contracts

An off the plan contract is a contract for the sale of a property in a new subdivision that does not have a separate title at the time the contract is entered into. Often the construction of the property will not be complete, but developers will pre-sell the vacant lots or units.

Sunset clauses

Usually, the contract will be conditional upon the property being registered by a certain date (referred to as the “sunset date”). If the property is not registered by the sunset date, then the contract will allow either the buyer or the seller to rescind the contract (referred to as a “sunset clause”).

Recently, sunset clauses have been the subject of some controversy due to reports of developers deliberately delaying a project, so that the sunset clause can be exercised. The developer rescinds the contract, refunds the deposit and resells the property at a higher price than what was contracted with the original purchaser. While the purchaser gets their deposit back, they are not entitled to any compensation. Such action, while somewhat unfair, is entirely legal under the current laws, as parties are free to negotiate the terms of an off the plan contract (which are usually weighted heavily in favour of the developer).

Proposals for change – Conveyancing Amendment (Sunset Clauses) Bill 2015 (NSW)

The Conveyancing Amendment (Sunset Clauses) Bill 2015 (NSW) was introduced into the NSW Parliament Legislative Assembly on 10 November 2015. The Bill will introduce a new Division 10 of the Conveyancing Act 1919 to prevent sellers from unreasonably rescinding off the plan contracts for a residential lot* under a sunset clause.

The seller may only rescind the contract if:

  1. the seller gives the purchaser a notice in writing at least 28 days prior to rescission under a sunset clause. The notice must state why the seller is proposing to rescind and give reasons for the delay; and
  2. the purchaser gives written consent to the vendor’s proposed rescission; or
  3. the vendor obtains an order from the Supreme Court permitting the rescission; or
  4. the reason for the rescission comes within a category prescribed by the Regulations (no Regulations have yet been made).

Should the seller approach the Supreme Court, it must convince the Court that rescission of the contract is just and equitable in all the circumstances.  The Court will consider the following:

  • the terms of the contract;
  • whether the vendor has acted unreasonably or in bad faith;
  • the reason for the delay;
  • whether the subject lot has increased in value;
  • any other matter the court considers to be relevant.

If the seller is unsuccessful, the seller must pay the purchaser’s costs of the application to the Supreme Court.

Application of the new provisions

The proposed amendments will apply to existing contracts and any rescission by a vendor on or after 2 November 2015.

What’s next

We would expect the Bill to be debated shortly and perhaps some minor amendments made to clarify some provisions.

* “residential property” has the same meaning that it does in s 66Q of the Conveyancing Act 1919

Sebastian and Genevieve are experienced property lawyers who have both acted on numerous off the plan sales and purchases. Contact Trouncer Legal today by phoning (02) 9481 9800, emailing admin@trouncerlegal.com or by filling out our contact form here.

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